Carolina Plantations Real Estate Blog

If you're planning on purchasing a home and will need a mortgage, your lender may require you to pay for private mortgage insurance (PMI) if your down payment is less than 20 percent. Mortgage insurance is required in the event that you default on the loan, the mortgage insurance company agrees to an arranged payout to the lender for its loss. It’s important to remember that mortgage insurance doesn’t protect you from any loss; it is to protect the lender.

Requirements for mortgage insurance varies by loan type and some have no requirements at all. For example, FHA loans require mortgage insurance to be paid up front as well as monthly. VA and USDA loans do not require any insurance. While conventional loans require mortgage insurance only if equity is less than 20 percent.

It’s common for borrowers to initially have mortgage insurance then refinance without it in the future. At some point, if you keep making your mortgage payments, you will be in the equity position (20 percent or more) where it will be possible to stop making mortgage insurance payments altogether. This will reduce the amount of your monthly mortgage payment but you need to be proactive and call your lender when you believe you have reached the equity position required to drop the PMI.